An extract from 'Accidental India'

accidental india

a history of the nation ’ s passage through crisis and change

Shankkar Aiyar

% In this brilliant and learned book, the author uses specific milestones—such as the Green Revolution which freed India from the fear of famine and delivered food security; the midday meal scheme which spurred school enrolment and literacy; the nationalization of banks which democratized capital; and the software revolution which transformed the country’s Third World image—to demonstrate that India’s ascent has been driven not by ideology or programmed initiative, but rather by serendipitous events that delivered change.

The best-known example of the country changing course as a result of circumstances—rather than by design—is the liberalization of the economy. India was once one of the world’s most globalized economies, but war and the pernicious effects of colonization had put paid to that. In 1947, when the country gained independence, it should have opted for a free and open economy, but pride and paranoia prevailed and economic freedom was surrendered to state control. For forty-three years successive governments existed in denial of their appalling record when it came to economic governance.

Scarcity was the norm. It was also the basis for business and politics to sustain profit and power.

Then, in 1991, the financial crisis and the collapse of the existing political order led to the moment of truth.

6 p.m., 20 June 1991 12 Willingdon Crescent Road It was a typical Delhi summer day with the temperature in the thirties.

The rasp of starched khadi blended with the rustle of raw silk, the thud of car doors closing bounced off the walls of the colonial mansion.

Nervous laughter mingled with faux bonhomie and the air was heavy with the obsequiousness unique to the Delhi Durbar.

P. V. Narasimha Rao had been anointed prime minister just a few hours ago and the pilgrims lined up to pay obeisance. Ironically, just a few weeks earlier, the wily hermit of the Congress party had been nudged into retirement to write his book, through which he hoped to relive his days of political glory. Tragedy and fate willed otherwise.

As India lurched from turmoil to trauma on 21 May, following the assassination of Rajiv Gandhi, Rao returned to centre stage. In less than a fortnight he engineered his resurrection, outwitting Sharad Pawar, a much younger challenger, through a combination of

The Book of Aleph

MO NS OO N

sheer guile and intellect. Patiently, Rao allowed the aggression and disruption that Pawar represented to threaten the Congressmen.

Arguably the most qualified practitioner of Congress politics, the polyglot managed to communicate to the MPs and the first family that their best interests lay with a tried and tired status quo. The dictates of the moment, though, left no room for any sort of status quo. India may have emerged from its worst political crisis in recent history, but it was trapped in an economic crisis that compelled an agenda for disruption.

In less than twenty-four hours Rao would be sworn in and would have to select a team that was acceptable to the fragile coalition of parties that supported his government. After sundown that day, all hangers-on at his official residence were shepherded away and Rao asked for his soup. In a quiet chamber, along with another wily old campaigner, Sitaram Kesri, he awaited the return of P. C. Alexander— 66/67

his aide de campaign—from a critical mission.

Just then, an usher walked in to inform Rao that an important visitor had arrived and was waiting for an audience. It was Cabinet Secretary Naresh Chandra, an accomplished bureaucrat. As chief of the bureaucracy, Chandra had witnessed the most tumultuous period of his career since taking over in December 1990. India would see its third prime minister in eighteen months. Its economy had already been downgraded twice in six months from stable to speculative by the rating agencies. Its foreign exchange reserves were enough to cover just fifteen days of imports. Inflation was rising and the government was on the edge of bankruptcy.

Rao called him in. After the usual pleasantries, Chandra discussed the plans for the swearing in. Everything seemed in order— inasmuch as the chaos that defines politics would allow. The list of forty-five ministers was yet to be finalized and it would, as always, be

The Book of Aleph

a last-minute affair. Chandra then pulled out the file he had brought with him and handed it over to the prime minister-in-waiting. It had two notes in it—one was a detailed account of the economic crisis; the second laid out the blueprint for the revival of the country’s economy.

Narasimha Rao recognized he had been presented with a fait accompli. The draft for economic revival was the New Delhi Consensus, a promissory note India had committed to while seeking financial assistance from the Bretton Woods twins, the IMF and the World Bank, in January. The Government of India had already availed of two tranches of loans from these bodies as emergency funding to prevent a financial meltdown. But it needed to do much more. On the verge of default, India had committed in principle to mend its ways of managing the economy.

To effectively defuse a crisis of this magnitude, Rao needed both political empowerment, ideally through a parliamentary majority, and the room to manoeuvre, but he had neither. He owed his crown to a covenant of loyalty to the Gandhis, and he did not have the freedom to act without let or hindrance. But not for nothing was Rao legendary for his political acumen and his ability to turn perilous situations to his advantage. He sensed the opportunity to dismantle not just the apparatus of state control, but an entrenched political class.

However, in order to put his plan into action, he would first need an effective firefighter. Even before the final word on his coronation was out, Rao had approached the famous economist and former Reserve Bank of India governor, I. G. Patel, to join his team. Patel, ever the pragmatist, had begged off and suggested another career bureaucrat, Dr Manmohan Singh, as a possible choice. Rao’s need was for someone who was an acceptable face to the IMF and the World Bank, who knew the economy and understood the web of levers that controlled political decision making. Singh qualified on all counts. He had served on every

The Book of Aleph

MO NS OO N

rung of hierarchy and was familiar with the interlocutors in the FundBank dispensation. As secretary general of the South Commission he had interacted closely with Bank officials and IMF Managing Director Michel Camdessus. A major point in his favour was that he was known to harbour political ambitions.

Singh was on a flight back from Japan. The next day, at 5 a.m., Alexander rang him to say he wanted to see him. Alexander turned up at Singh’s house at 7 a.m. and offered him the post of finance minister. Singh, says Alexander in his memoirs, replied with a classic bureaucratic poser: ‘What do you think?’ His concern: would Rao and he get the political backing they needed? It was more a rhetorical poser than a real concern. After all, Singh had survived every political whim—from the nationalization of banks to ‘Garibi Hatao’ to partial liberalization—of successive governments for over two decades.

He owed his survival to his ability to make a distinction between his 68/69

opinion and the expediency his political masters expected of him. An economist as ambidextrous as any, he knew his ‘on the one hand and on the other hand’ arguments well. Most importantly, as adviser to a former prime minister, Chandra Shekhar, he knew the lie of the land, metaphorically and literally. w The parlous state of the economy was never a secret. The meltdown of 1991 was a consequence of the crisis of thinking on the part of successive governments for four decades and more. Since 1947, India had believed in the mythological power of the state to deliver prosperity. The cult of nationalism was replaced by the church of socialism. To consolidate their hold on their parish, the evangelists of the middle path used every crisis as an opportunity. Each time the economy stalled, these pundits argued that more control was

The Book of Aleph

Š Bandeep Singh

needed, although the crux of the problem was located in the reality of India being a resource-starved economy. The country had always needed foreign exchange for imports and to sustain its economy. The strategy of import substitution (through, among other things, the maintenance of a licence-and-control raj) precluded competition, promoted inefficiency, hindered exports and aggravated the country’s dependence on aid. As a result, every external shock or internal failure produced an economic crisis. India became a regular visitor to the soup kitchen of multilateral institutions and had been on the verge of bankruptcy five times. Each visit to the world lenders of foreign aid resulted in the same prescription: remove the controls on the economy. w Rao was sworn in around noon on 21 June 1991. Among the first decisions he took was to astutely retain the portfolio of industries 70/71

minister. He had already chosen Manmohan Singh as finance minister. He then brought in another savvy, result-oriented individual, P. Chidambaram, as commerce minister. His choice of the team to effect change was defined by his need to ring-fence executive decisions from political baggage and influence. Rao instituted a steering group within the Prime Minister’s Office which met every week to discuss and debate the architecture of what would eventually be hailed as the liberalization of 1991. It was decided that the government would present its budget on 24 July, which left the team less than a month to get everything in order.

In the final days before the budget was to be presented, the steering committee met many times every day to fine-tune the political language of the package, particularly the new industrial policy, as this would be critical to ensure its smooth passage through Parliament. For, in effect, what the policies that Rao and his team

The Book of Aleph

were contemplating were about to do was overturn everything the Congress had stood for. Eventually, Rao and his team decided to deploy the optics of politics to make their proposals acceptable. Obeisance was paid to Jawaharlal Nehru, Indira and Rajiv Gandhi in both the new proposed industrial policy and the budget. In his budget speech Manmohan Singh said: ‘Thanks to the efforts of Pandit Jawaharlal Nehru, Indira Gandhi and Rajiv Gandhi, we have developed a welldiversified industrial structure.’ The 1991 economic liberalization plan was portrayed as a tribute to the aspirations of Rajiv Gandhi built on the foundations laid by Nehru and Indira Gandhi.

On 24 July 1991, thanks to the political acumen and determination of Prime Minister Rao to take advantage of the crisis that had engulfed him to bring about change, the Indian economy was finally unshackled.

Concluding his budget speech, Finance Minister Manmohan Singh quoted Victor Hugo: ‘No power on earth can stop an idea whose time has come.’ The crisis was deployed as the clinching argument for long-awaited change.

Journalist–analyst Shankkar Aiyar scooped the news of India pledging its gold reserves with the Bank of England in 1991 during its worst economic crisis since Independence. His exposé of the hush-hush operation brought home to Indians and the world the magnitude of India’s woes. As an award-winning journalist and columnist, Aiyar specializes in the interface of politics and economics. He has broken numerous front-page newspaper stories and has written over a hundred magazine cover features. Accidental India: A History of the Nation’s Passage through Adversity and Change is his first book.

%

The Book of Aleph

MO NS OO N